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The more things change, the more they stay the same. I spend my day talking to entrepreneurs looking to build the next great innovation, investors seeking alpha in some hidden market opportunity, or individuals who are explaining how the world is evolving in a way that no one quite understands yet.
These conversations are fascinating. They give me a view into the future. What technology is being built? How will it change the way that people or organizations conduct their daily activities? What are investors thinking? How will capital flows change? On a day-to-day basis, it can almost be overwhelming. So much innovation, so little time.
But is that really true?
I’ve been spending more time thinking about the long term. Zooming out in a way. Where did we come from? What is happening today? And how does that impact where we are going? These questions don’t have a single right answer, but instead can usually be boiled down to my personal interpretation of the set of facts that I have.
More frequently though, I am concluding that very little has actually changed over the last few decades. Here are a few examples of what I mean:
Innovation — this body of work is driven by the activity and movement of intellectual capital. When engineers, entrepreneurs, and innovators begin to all work on the same industry in a given time period, there is incredible progress made. These innovation cycles follow similar paths. You have early adopters and late adopters. Boom and bust cycles. Excitement and disappointment. The easiest way to find innovation is to simply follow the talent.
Investment alpha — the best investors are constantly seeking asymmetry. This lopsided risk-reward payoff can be found by believing in technology and innovation trends before the masses. You have to allocate your capital somewhere that others don’t yet believe has value, while also being right. If you do something different and are wrong, that just makes you an idiot. Additionally, following the intellectual talent, particularly young people, can help to easily identify where innovation is happening, and innovation leads to outsized returns.
Capital flows — many investors spend too much time trying to outsmart the market, when in reality they simply need to understand the human psychology that drives capital flows. Take inflation as an example. It doesn’t matter if inflation actually occurs or not. If people fear inflation, capital will flow to inflation-hedge assets. If you move your capital before the masses, you will capture a return once the bulk of capital starts to flow. The psychology of markets is still the main driver behind price movements of various assets.
These are just three simple examples that I use to highlight that almost nothing is different this time around. Sure, the technology is different. Some of the players are different. But the core principles of building companies and investing capital have not changed.
An unfortunate story that proves the point is Bill Hwang and Archegos Capital Management. For those that don’t know the story from last week, Bill is a well respected investor who had billions of dollars in assets. Today he has almost nothing left. According to CNBC, here is what happened:
“Archegos held large and leveraged bets in U.S. media stocks ViacomCBS and Discovery, as well as a few Chinese internet ADRs including Baidu, Tencent and Vipshop. Some of the positions were held via total return swaps, a type of derivative that allows investors to take big, levered stakes without disclosing those positions publicly.
These bets started to go south after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart. It triggered a domino effect where prime brokers rushed to exit the positions on Archegos’ behalf and resulted in a massive margin call.”
Bill Hwang lost billions of dollars. Big financial institutions like Nomura and Credit Suisse lost billions of dollars. Frankly, this is the equivalent of financial carnage. So what does this have to do with my point that nothing is different? Even in the good times, lack of risk management and the use of too much leverage can be fatal. This story is as old as time.
As I’ve thought more about the exciting advancements today, it has brought me back to the book that always grounds me in the long-term view of the world: Mark Spitznagel’s The Dao of Capital. Here are just a few of my favorite quotes from the book:
“No one should expect that any logical argument or any experience could shake the almost religious fervor of those who believe in salvation through spending and credit expansion.” - Mises
"The whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence: The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy." - Henry Hazlitt
"Underlying Mises' observations throughout was the basic unruliness of market prices, of their inherent subjectivity — a subjectivity that stems from the perceptions, needs, tastes, and impatience of humans." - Spitznagel
"Civilizations advance through the accumulation of highly configured capital, which does not thrive amid extreme volatility and destruction; on the contrary, capitalism wants stability — but also the free competitive transferral of resources" - Spitznagel
Free markets and competition lead to innovation. Innovation leads to progress. Progress leads to returns. Returns lead to more investment. The circle of life for financial markets. This is the way. But the more things change, the more they stay the same.
It is easy to get caught up in the day-to-day changes. Zoom out every so often. Remember that we are all playing a game that will last for decades. The goal is not simply to win today, this week, this month, or even this year. The real players know that they have an advantage if they can survive forever.
Long term thinkers have the upper hand. It takes emotional intelligence and control, but if you can keep your focus on the select few things that move the needle for your goals, you have a fighting chance. And ultimately, a fighting chance is all that any of us can ask for.
Have a great day. I’ll talk to everyone tomorrow.
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Anthony Di Iorio is primarily known as a co-founder of Ethereum and an early investor in Bitcoin. Di Iorio is the founder and CEO of the blockchain company Decentral, and the associated Jaxx wallet. He also served as the first chief digital officer of the Toronto Stock Exchange.
In this conversation, Anthony and I discuss:
early days of bitcoin
how to compound impact
Decentral and Jaxx
I really enjoyed this conversation with Anthony. Hopefully you enjoy it too.
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